Q.1 The retained earnings column, extracted from the draft statement of changes in equity of Puffer...

  

Transcribed Image Text:

Q.1 The retained earnings column, extracted from the draft statement of changes in equity of Puffer Limited (PL) for the year ended 31 December 2022, is as follows: Balance as at 31 December 2020 Final cash dividend @ 10% for the year 2020 Profit for the year 2021 Balance as at 31 December 2021 Profit for the year 2022 Balance as at 31 December 2022 Rs. in million 928 (114) 258 1,072 328 1,400 The following changes have not been incorporated into the draft financial statements of PL: (i) PL has decided to change the method for valuation of inventory from 'first-in, first-out' (FIFO) to the weighted average. The value of inventory under each method has been determined as follows: FIFO Weighted average Rs. in million As at 31 December 2020 438 460 As at 31 December 2021 As at 31 December 2022 560 520 601 618 (ii) In view of increasing bad debts, PL has decided to double the provision for doubtful receivables. The balance of provision for doubtful receivables prior to this change were as follows: As at 31 December 2020 As at 31 December 2021 As at 31 December 2022 Rs. in million 15 19 23 (iii) PL has also decided to recognise all borrowing costs incurred in a year as an expense. Previously, borrowing costs related to qualifying assets were capitalised as part of the cost of that asset. Total borrowing costs incurred during the years 2022 and 2021 amounted to Rs. 87 million and Rs. 95 million, respectively. Of these, Rs. 53 million and Rs. 38 million were capitalised in the cost of head office building in 2022 and 2021, respectively. The construction of the building is expected to complete in 2023. Required: (a) Briefly discuss how the above changes should be incorporated in PL's financial statements. (03) (b) Prepare the retained earnings column as would appear in PL's statement of changes in equity for the year ended 31 December 2022, in accordance with IFRSS. (06) Q.1 The retained earnings column, extracted from the draft statement of changes in equity of Puffer Limited (PL) for the year ended 31 December 2022, is as follows: Balance as at 31 December 2020 Final cash dividend @ 10% for the year 2020 Profit for the year 2021 Balance as at 31 December 2021 Profit for the year 2022 Balance as at 31 December 2022 Rs. in million 928 (114) 258 1,072 328 1,400 The following changes have not been incorporated into the draft financial statements of PL: (i) PL has decided to change the method for valuation of inventory from 'first-in, first-out' (FIFO) to the weighted average. The value of inventory under each method has been determined as follows: FIFO Weighted average Rs. in million As at 31 December 2020 438 460 As at 31 December 2021 As at 31 December 2022 560 520 601 618 (ii) In view of increasing bad debts, PL has decided to double the provision for doubtful receivables. The balance of provision for doubtful receivables prior to this change were as follows: As at 31 December 2020 As at 31 December 2021 As at 31 December 2022 Rs. in million 15 19 23 (iii) PL has also decided to recognise all borrowing costs incurred in a year as an expense. Previously, borrowing costs related to qualifying assets were capitalised as part of the cost of that asset. Total borrowing costs incurred during the years 2022 and 2021 amounted to Rs. 87 million and Rs. 95 million, respectively. Of these, Rs. 53 million and Rs. 38 million were capitalised in the cost of head office building in 2022 and 2021, respectively. The construction of the building is expected to complete in 2023. Required: (a) Briefly discuss how the above changes should be incorporated in PL's financial statements. (03) (b) Prepare the retained earnings column as would appear in PL's statement of changes in equity for the year ended 31 December 2022, in accordance with IFRSS. (06)

Answer rating: 100% (QA)

1 Reduction in annual operating costs Operating costs pr... View the full answer